THE AUTHOR:
Karl Hennessee, Senior Vice President, Head of Litigation, Investigations & Regulatory Affairs at Airbus.
Arbitration, as a dispute resolution mechanism, has gained widespread acceptance for its flexibility, efficiency, and respect for party autonomy. However, the threat to the system is obvious from the fact that every single arbitration conference has at least one panel devoted to time and costs. In endless discussions, we express the growing concern within the arbitration community that the obsessive respect for due process by tribunals supercharges the overcautious behavior of counsel and tactical behavior exhibited by parties. Failure to address this issue erodes the trust of users in the system, akin to the concept in economics and ecology of The Tragedy of the Commons.
The Tragedy of the Commons, a term coined by economist Garrett Hardin, refers to the degradation of shared resources when individuals act in their self-interest without considering the broader community. In the context of arbitration, dilatory behavior by parties can be seen as a form of overuse or abuse of shared resources—the tribunal’s time and resources and the overall goodwill built up over the years in the dispute resolution community. An overcautious approach by tribunals in addressing dilatory conduct allows this “tragedy” to unfold, undermining the very essence of arbitration as an efficient and timely dispute resolution mechanism.
Arbitration’s effectiveness hinges on its ability to provide a timely and cost-efficient resolution. When parties engage in dilatory tactics, such as repeated procedural motions, excessive document requests, or other delays, the process becomes a victim of abuse. Tribunals, in adopting an overcautious stance, risk perpetuating this abuse by not taking decisive action against such conduct. This erodes the trust of users in the system, as they witness their cases lingering in uncertainty and their resources being misused. In my own practice, I have seen dozens of examples. Two favorites just by way of example:
- In a case where we were claimant, the respondents’ nine-member legal team kept telling three of the most eminent arbitrators I know that they simply “weren’t available” for multiple proposed hearing dates. Despite this, the Tribunal patiently proposed alternative dates until a convenient week was found, allowing an award to be rendered two and a half years later… months after the respondent had filed for bankruptcy.
- A matter in which we are respondents is presently bogged down in a protracted argument to strike a filing by my counsel that was submitted 29 minutes after midnight on the deadline due to a software error. On the other side, the otherwise reputable counsel is clearly so beholden to the client that they indulge in absurd tactics to appease the whims of the principal. No doubt (another) challenge to the Tribunal will follow when the inevitable ruling in our favor comes.
It’s time for the talk to stop and the action to commence. In economic theory, moral outrage has never been a successful solution to a Commons problem. Instead, every economist would see that, to address the “moral hazard” problem, one has to internalize the costs of the process and assess them against the party at the origin of the problem.
To address the issue of dilatory behavior, arbitration tribunals must adopt a more robust approach. Interim cost awards are one tool that may serve as a deterrent against parties engaging in frivolous tactics to stall proceedings. By shifting the financial burden onto the dilatory party right away, tribunals can incentivize compliance with procedural timelines and discourage tactics aimed at derailing the arbitration process. Interim cost awards not only act as a deterrent but also serve the interests of justice by preventing the dilatory party from unjustly benefiting from its conduct. These awards can be tailored to consider the severity and impact of the dilatory behavior, ensuring a proportionate response. By utilizing such cost awards, tribunals can signal – even beyond the immediate legal team – their commitment to maintaining the efficiency and integrity of the arbitration process. Governance stakeholders outside the immediate legal team may take notice, and perhaps take action.
I recall an early matter of mine in which a US magistrate judge informed counsel on a Monday that our 45 discovery disputes would be heard on Thursday of the same week – with indemnity costs going to the successful party on each one. By Wednesday night, counsel had resolved all disputes between themselves. Arbitration tribunals do not have all the powers of a court – but cost awards are one they do undoubtedly have.
A more robust approach by arbitration tribunals to dilatory behavior is essential to preserve the trust and efficacy of the arbitration system. The analogy of The Tragedy of the Commons underscores the collective responsibility of all stakeholders to ensure the efficient use of resources. Interim cost awards are one tool in combating dilatory tactics, promoting fairness, and reinforcing the principles that make arbitration a preferred mode of dispute resolution. As users place their faith in the system, tribunals must strike a balance between caution and assertiveness to maintain the credibility and effectiveness of arbitration.
ABOUT THE AUTHOR:
Karl Hennessee, FRAeS, is SVP Litigation, Investigations & Regulatory Affairs at Airbus, where he leads the Group’s global activities in these areas. Separately, he lectures at various Universities and occasionally sits as arbitrator and serves on the board of directors of companies and nonprofits. He previously served as Chairman of the Governing Body of the ICC Court of International Arbitration and is now a member of the HKIAC Council as well as its Appointments and Rules Committees. He also serves on the Board of Directors of the International Council of Commercial Arbitration, the IBA Mediation Committee, the Advisory Council for the School of International Arbitration at Queen Mary University of London and on the Board of the Toulouse Capitole Law School.
